Publicly-financed business loans are a high-stakes game, providing an economic boost in some cases while saddling taxpayers with six-figure losses in others.

Banks consider loan write-off rates above 2 percent unacceptable, but local economic development funds examined by the Gannett Wisconsin Media Investigative Team wrote off about 7 percent of loans active in the last decade — with losses totaling $4.4 million. The loans often help employers create jobs, but they also can force taxpayers to prop up businesses that fail to meet obligations.

For example, Wood County loaned $200,000 to Derks Dairy Farm in 2009, but county officials were stunned to discover a few years later that the family had sold the farm and auctioned its assets without notice. The remaining $192,000 was written off in early 2012 as a loss.

"Once we were made aware of it, there was no legal way for us to be able to retrieve the assets," said Jim Warsaw, administrator of the Central Wisconsin Economic Development Fund, a consortium of seven counties that absorbed the bad loan when Wood County joined.

But for each publicly-funded loan failure, there are many success stories.

Across 42 counties, cities and villages in central and eastern Wisconsin, public officials oversaw nearly 1,000 loans totaling $187 million in the last decade, of which 109 were delinquent or written off as of March, according to data obtained by Gannett Wisconsin Media through public records requests. That means about 90 percent of loans have fueled business start-ups and expansions that created or retained jobs and met loan obligations.

Intevation Food Group is one such example. After struggling to find start-up funding from banks amid the Great Recession, the company obtained a pair of $400,000 loans from Portage County and the village of Plover in 2009. Intevation, which manufactures frozen food under various brand names, now has about 150 full-time employees and has already repaid half of each loan.

"We are bringing economic activity and revenue into this county, and that's something we're very proud of," said the company's business manager, Michael Hurst.

Officials say local loan funds have a different goal than banks — creating jobs and increasing the tax base — which requires and justifies more risk.

"It's important to have a program in place … to have development opportunities occur today rather than five years from now or 10 years from now," said Chuck Lamine, Brown County planning director. "Is it without warts? No. But if you dig into a typical bank portfolio, I think you're going to find the same thing. That was the intent of the program, to go out and make things happen."

The local programs are approved and overseen by cities, counties or regional development groups and offer loans to fund expansions or start-up costs, with repaid loans used to fund additional investments. The money often originates as federal Community Development Block Grant dollars, but some entities also use local taxes to fund the program or make up losses when loans are written off.

Dan Olszewski, director of the University of Wisconsin-Madison's Weinert Center for Entrepreneurship, said public development funds often fill gaps where for-profit lenders fear to tread, particularly in funding start-ups. He said the 7 percent write-off rate is better than he'd expect given the risk involved.

The involvement of a local development fund also adds credibility to a project.

"(Local loan funds) have allowed us to get involved with projects that we perhaps wouldn't have done on a standalone basis," said Stephen Tramp, who heads commercial lending for Associated Bank's Fox Valley region.

Write-offs come from all corners

Wisconsin Rapids had the highest write-off rate, 19 percent, in the last decade among the central and eastern Wisconsin development funds. It wrote off five of its 27 loans for a total of $218,000.

Calumet, Portage and Waushara counties were little better, writing off at least 16 percent of loans. Waushara County was the hardest hit in terms of loan value, writing off 28 percent due to the failure of a $300,000 loan in 2012.

That loan, to furniture manufacturer Especially For You, was essentially a last-ditch attempt to bail out a foundering business, said Bill Wheeler, executive director of the Tri-County Regional Economic Development Corp., which covers Waushara, Green Lake and Marquette counties. The development fund, county and state were involved in the loan, which was federally funded and came on the heels of a $30,000county loan that was also written off.

"They went out of business within months after the loan," Wheeler said, attributing the business failure to competition from China. "Didn't do the trick."

The largest write-off was for Heus Manufacturing in New Holstein, a century-old company that received $850,000 through Calumet County to buy an additional building in 2007. Heus shut down in 2009 as the recession dried up demand for its parts, forcing the county to write off the entire loan.

Among loans written off, about one-quarter of the loan amounts were repaid or recovered through legal action on average.

Several other large loans are expected to be written off in the near future, officials say.

Morgan Aircraft is expected to default on a $686,000 loan that Sheboygan County issued in 2011 to fund the start-up manufacturer of planes capable of vertical takeoffs and landings, said county Finance Director Terry Hanson. Ralph Hamel Forest Products, in Wood County, still owes the full $500,000 it was loaned in 2004, and Warsaw said he is "not very optimistic" about getting it repaid since the company is barely operating.

Wilcox Steel in Green Bay is in bankruptcy, and Lamine said it will be "a challenge" for Brown County to collect any of the $362,000 remaining on the company's $500,000 loan from 2006. The Wilcox case may lead to legal action — as other local problem loans have — adding further costs to a failed loan as the county pursues a settlement or payback through bankruptcy proceedings.

Many municipalities have a committee of local businessmen that decides which applications to approve, but development loans can still be a dangerous game for local officials with a limited background in the field, said Olszewski.

The risks and potentially political nature of local loan funds can make them a lightning rod for critics. The then-president of the Two Rivers City Council, Brian Powell, made headlines in 2008 after blasting the city's loan program for giving a second loan in an unsuccessful attempt to keep a struggling business afloat. He also said the city showed favoritism by not cutting off utility service to delinquent businesses with city-funded loans and allowing some businesses to miss payments without penalty.

Two Rivers wrote off the most loans among the funds surveyed — seven since 2004 — followed by Sheboygan with six. Both were also among the most active lenders, however, issuing about 70 loans apiece over that span. The write-offs totaled $417,000 in Two Rivers and $794,000 in Sheboygan.

Sheboygan's biggest miss came on a $350,000 loan in 2011 to Yinko Designs, a start-up manufacturer of bus safety mirrors. The firm promised 35 jobs but had its primary buyer back out after the first order was prepared, forcing the company to fold since it didn't have the capital to absorb the initial loss. The city wrote off the entirety of the loan this year.

Range of fund philosophies

Though city, county and regional development groups serve a similar purpose — creating jobs and growing the tax base — they vary widely in the types of loans they issue and the risk they're willing to take on.

Sheboygan is among the entities willing to offer forgivable loans if certain terms are met, meaning some or all money isn't paid back by the entrepreneur. Four of its 26 current loans fall in this category, including a $400,000 loan to Rockline Industries (contingent upon 55 new positions being created within five years) and a $250,000 loan to Mayline (if 25 jobs stay in Sheboygan for five years).

"That's not our operating policy to give forgivable loans, but in some situations where it's in dire need for something that's a very favorable term to keep a company here, then that's what we're going to do," said Chad Pelishek, Sheboygan's director of planning and development.

Lamine said Brown County never issues forgivable loans because the depleted fund balance means less money for future loans.

Other funds seek or avoid various loan types. Winnebago County avoids start-up businesses. Brown County generally avoids restaurant loans. Two Rivers is especially focused on downtown development and offers larger loans and lower interest rates to businesses opening there.

Loan size is also a key philosophical divide.

Among loans in force from 2004 through this March, Marathon County, Two Rivers and Sheboygan were the most active with more than 60 loans apiece, but all averaged around $100,000 per loan, according to information released by central and eastern Wisconsin loan funds. Appleton and Menasha, on the other hand, issued only four loans each, but averaged around $600,000 per loan.

Two-thirds of the loans detailed in public records released to Gannett Wisconsin Media were for $100,000 or less.

Fond du Lac County is the most extreme example of going all-in, loaning $50 million to Mercury Marine in 2009 when the boat manufacturer pondered moving to Oklahoma and $6 million to Alliance Laundry Systems in January to help fund an expansion. No other local economic development group surveyed loaned more than $2 million in the last decade in a single loan.

"I don't think anybody else is doing it like this, but it's working for us, and we feel we need to continue," said Fond du Lac County Executive Allen Buechel, noting the loans have helped create 2,000 local jobs since 2009.

"Tax credits, payments for job training, low-cost loans, that's the name of the game right now, and in Fond du Lac County we decided to commit these types of dollars and stick our neck out to get the kind of job growth that we need."

Over the course of several months, the Gannett Wisconsin Media Investigative Team gathered data on nearly 1,000 loans to examine the efficiency and impact of local economic development funds.

The programs serve a similar role to the statewide Wisconsin Economic Development Corp. but typically receive less scrutiny. Gannett Wisconsin Media filed public records requests in March with more than 50 cities, counties and villages in central and eastern Wisconsin for information on all loans current as of January 2004 or issued since.

In all, 42 entities provided records on 965 loans issued by municipalities or regional development groups. In many cases the funds originated at the federal or state level, but all business loans approved and administered by a local group were included in the analysis.

The information was combined into a searchable database, which is available online with this story. The remaining entities reported they did not have an economic development or revolving loan fund.

Today: Local business loans bring risk, reward

Sunday evening: Public loans struggled amid recession

More municipalities turning to regional development groups

By Eric Litke

Gannett Wisconsin Media Investigative Team

Local economic development funds can benefit from giving power to public officials with more community insight, but the programs also struggle at times given their small size and limited capital.

Some communities have addressed this by creating regional economic development groups. They combine money from a group of cities and counties and are run by someone more experienced in business financing.

"The major plus is access to a larger pool of funds," said Jim Warsaw, administrator of the Central Wisconsin Economic Development Fund. "It might enable us to do larger projects, it might be able to do them a little bit more efficiently than what could happen through the larger state programs."

Only one of the seven counties comprising the central Wisconsin fund has a population above 100,000, but together they have more than $8.5 million in current loans and another $4 million available for future loans. The group consisting of Adams, Forest, Lincoln, Marathon, Portage, Vilas and Wood counties formed in 2009.

Bill Wheeler, executive director of the Tri-County Regional Development Corp., noted the first loan his group did — $35,000 to New Life Nutrition in 2009 — wouldn't have been possible if Waushara County hadn't teamed up with Green Lake and Marquette counties. Waushara only had $3,000 on hand when it joined the program.

Economic development partnerships, though can have drawbacks.

Municipalities merge their cash as well as existing loans, so Wood County brought in a $200,000 loan that was almost entirely written off in 2012 by the central Wisconsin group. And Warsaw said another $500,000 loan Wood County brought in is expected to be written off in the future.

Launching a regional fund isn't always easy.

The Wisconsin Economic Development Corp. — the state-run business development agency — pushed Fox Valley communities to form a regional group to streamline management in 2013. But after member communities began setting aside funds for the program, the proposed group ran into red tape over use of federal Community Development Block Grant funds. It is unclear now when or if the group will get off the ground.

Block grant funds, which many local economic development groups use to fund business loans, require that 51 percent of the created jobs be low- or middle-income positions.

Twenty-two cities and counties in Wisconsin are authorized to receive block grant money directly, said U.S. Department of Housing and Urban Development spokesman Brian Gillen. Other communities must get such loans through the state, giving state officials a say and further complicating the loan approval process.